NTP 2020: 6 strategic aims for Saudi Finance Ministry

JEDDAH: One of the key aims for Saudi Arabia’s Ministry of Finance is to achieve a balanced budget by 2020 under the National Transformation Program.

The Saudi Cabinet approved the Kingdom’s National Transformation Program (NTP 2020) on June 6, with it ushering in a major new policy era designed to overhaul the economy.
“We estimate the total cost of the NTP to be borne by both the public and private sector will be SR447 billion,” Jadwa Investment stated in a recent report.
It pointed out that the Ministry of Finance (MOF) is in charge of implementing the Kingdom’s fiscal policy, and monitoring its implementation by the relevant agencies.
Aside from preparing the annual budget, the ministry also engages with government agencies and monitors the budget’s implementation.
MoF is also in charge of supervising the collection of government revenue and ensuring compliance with relevant rules and regulations.
Under the NTP, one of the key aims for MoF is to achieve a balanced budget by 2020.
In order to help achieve this, 6 strategic objectives are specified for the ministry. The first strategic objective is to strengthen public financial governance by improving transparency of the fiscal budget. KPIs include improving the Kingdom’s score from 0/100 to 25/100 on the open budget index by 2020. The Open Budget Index is a comparative measure of central government’s budget transparency, focusing specifically on how readily the government provides the public with timely access to comprehensive information contained in the budget.
In order to help achieve this objective, the MoF is targeting more than a two-fold increase in the percentage of government entities applying the Government Finance Statistics (GFS) system, from 30 percent today to 80 percent by 2020.
The GFS system is a specialized macroeconomic statistical framework designed to support fiscal analysis. It provides the economic and statistical reporting principles used in compiling statistics.
Another strategic objective is to increase non-oil revenues from SR163.5 billion in 2015 to SR530 billion by 2020.
This objective implies a cumulative average growth rate of 26.5 percent, compared with 18.3 percent between 2011-2015.
“We see this target being achieved if a collective effort by other government bodies is made, including the Zakat and Tax Authority, Saudi Customs, and other public investment vehicles,” Jadwa researchers added. A third objective is to raise the efficiency of spending on salaries and wages to improve performance productivity, and flexibility of public authorities. The target value of wages and salaries is SR456 billion (40 percent of total spending) by 2020, down from SR480 billion (45 percent of total spending) today. This will result in a reduction in public sector employment, especially when taking together with Ministry of Civil Service’s objectives, a separate government body with its own set of initiatives.
Under the NTP, the Ministry of Civil Service will have to increase the efficiency of salary and compensation expenditure through a 20 percent reduction in the number of civil servants. Another objective for MoF is to achieve sustainability in public debt by improving the Kingdom’s credit rating from an upper medium grade (A1) to a high grade (Aa2) by 2020. The NTP specified a set of initiatives for MoF to be launched in 2016 and aimed to address some or all of the objectives listed above, the reports added.
These include the adoption of tax reforms such as value added taxes on selective goods, minimum tax deductions, fees related to the registration of real estate properties and profits, and applying a new system for Zakat collection.
The aim is to achieve this while the Kingdom takes advantage of its strong fiscal buffers by increasing debt as a percentage of GDP from 7.7 percent today to 30 percent by 2020.